Australia sees strong wage growth in December 2021 quarter

Highlights

• Wages rose 2.3% annually during the December 2021 quarter.
• The significant growth in wages can be attributed to the shift in the bargaining power of the employees.
• There has been an acute shortage of skilled workforce in the Australian industries amidst border closures, which may soon in the following months.

In a refreshing series of events, wages growth in Australia took another leap in the last quarter. According to the Australian Bureau of Statistics (ABS), the country recorded a 2.3% annual rise in the Wage Price Index in the December 2021 quarter.

Interestingly, the Reserve Bank of Australia (RBA) has reiterated the need for wage growth before embracing interest rate hikes. With wages pacing up gradually, it seems the RBA’s wage growth target might be met this year, answering the most widely stipulated question of the interest rate hike’s timeline.

Australia observed a jump in the annual wage growth rate from 1.4% in December 2020 to 2.3% in December 2021. The significant growth in wages can be attributed to the shift in the bargaining power of the employees. As companies were on the lookout for labour, the bargaining power significantly shifted in favour of the workers searching for a job.

Meanwhile, there was a record surge in the number of job ads released in December, indicating the recovery of businesses and the need to bring the lost workforce back into the employed segment.

Let us take a closer look at the wage growth data:

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Wages remain strong

Data from the ABS reveals that the Wage Price Index, a standard metric used to measure wages in the economy, rose 0.7% during the December 2021 quarter alone. This rise in the December quarter is disproportionately higher than that usually seen during this time.

The last quarter of the calendar year 2021 was marked with the implementation of the last phase of award updates and state-based public sector enterprise agreements, alongside an increase in wage and salary reviews. These factors pushed the wage growth above average during the quarter.

However, in terms of annual wage growth, the December quarter’s rise was only minimally higher than the September quarter’s annual wage growth rate of 2.2%.

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Queensland recorded the highest quarterly wage growth of 0.8% among all the states during the last quarter. Meanwhile, annual wage growth rates in Victoria, South Australia, Western Australia, and North Territory remained low at 0.5%.

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Visible cracks in sectors

Wage pressure continued to build for jobs with specific skills in the December quarter. Private sector wages bolstered ahead of public sector wages, recording an annual growth of 2.4%. This was consistent with the private sector wage growth seen in the September 2021 quarter. The country saw sustained demand (earlier visible in isolated pockets) extending across industry groups, leading to huge increases paid to retain or attract skilled staff.

Meanwhile, public sector wages rose 2.1% annually. This growth was mostly because of large state government enterprise agreements returning to a regular schedule of pay rises in New South Wales and Queensland after observing wage freezes over the last 18 months.

Australia has time and again faced the issue of a declining skilled workforce, and the pandemic was not of much help in this regard. Since the country had closed its doors to international immigrants and workers, there was an acute shortage in the skill-specific sectors, causing an overall slowdown in the economy.

With borders finally reopening, some level of easing could seep into the labour markets, bringing back some lost strength in the Australian industries. Domestically, workers have been short in number and working fewer hours amidst the pandemic constraints. The number of hours worked between December and January fell sharply by 8.8%, mainly affected by the surge in Omicron cases. With reopening of borders, people may revise their views on the new strain and embrace a more optimistic approach.

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Bottom Line

In conclusion, the labour market data has been going strong since the December 2021 quarter, with unemployment remaining steady in January 2022. The December wage data could be crucial for the interest rate decision, shaping up new developments for the overall economy and the financial system. Experts expect the central bank to take a more cautionary approach and delay the interest rate hike. However, they are certain that the decision on interest rates will be taken this year itself.